Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e

Back Matter Appendix A: Economics

Fundamentals

© The McGraw−Hill

Companies, 2002

Economics Fundamentals 661

reasonable range.Of course, if the price is raised to a staggering figure, many people

will buy less oil (change their oil less frequently). If the price is dropped to an

extremely low level, manufacturers may buy more—say, as a lower-cost substitute

for other chemicals typically used in making plastic (Exhibit A-7). But these

extremes are outside the relevant range.

Demand curves are introduced here because the degree of elasticity of demand

shows how potential customers feel about a product—and especially whether they

see substitutes for the product. But to get a better understanding of markets, we

must extend this economic analysis.

Customers may want some product—but if suppliers are not willing to supply

it, then there is no market. So we’ll study the economist’s analysis of supply. And

then we’ll bring supply and demand together for a more complete understanding

of markets.

Economists often use the kind of analysis we are discussing here to explain pric-

ing in the marketplace. But that is not our intention. Here we are interested in

how and why markets work and the interaction of customers and potential sup-

pliers. Later in this appendix we will review how competition affects prices,

but how individual firms set prices, or should set prices, was discussed fully in

Chapters 17 and 18.

Generally speaking, suppliers’ costs affect the quantity of products they are will-

ing to offer in a market during any period. In other words, their costs affect their

supply schedules and supply curves. While a demand curve shows the quantity of

products customers will be willing to buy at various prices, a supply curveshows

the quantity of products that will be supplied at various possible prices. Eventually,

only one quantity will be offered and purchased. So a supply curve is really a hypo-

thetical (what-if) description of what will be offered at various prices. It is, however,

a very important curve. Together with a demand curve, it summarizes the attitudes

and probable behavior of buyers and sellers about a particular product in a partic-

ular market—that is, in a product-market.

We usually assume that supply curves tend to slope upward—that is, suppliers

will be willing to offer greater quantities at higher prices. If a product’s market price

is very high, it seems only reasonable that producers will be anxious to produce

more of the product and even put workers on overtime or perhaps hire more work-

ers to increase the quantity they can offer. Going further, it seems likely that

Supply curves reflect

supplier thinking

Some supply curves

are vertical

Exhibit A-7

Demand Curve for Motor Oil

(a product with few

substitutes)

Markets as Seen by Suppliers

(^0) Q
P
Quantity
Current
price level
Relevant
range
Price ($)
Consumers buy less often when
price goes above this level
Use instead of
other chemicals